Theatrical Not the ‘Only Way to Build a Disney Franchise’: CEO Chapek

Audiences will be Disney’s “North Star" as it determines whether to distribute its content theatrically or through direct-to-consumer streaming or a hybrid of the two, said CEO Bob Chapek on an earnings call Wednesday for fiscal Q1 ended Jan. 1. "We do not subscribe to the belief that theatrical distribution is the only way to build a Disney franchise,” he said.

Disney added 4.1 million paid domestic U.S. Disney+ subscribers in the quarter, said Chief Financial Officer Christine McCarthy. The paid additions included the "benefit" of gaining about 2 million "incremental" subscribers "from our strategic decision to include Disney+ and ESPN+ as part of a Hulu Live subscription,” she said.

Disney continues to see “value in the moviegoing experience,” said Chapek, “especially for big franchise blockbusters” like Spider-Man: No Way Home, co-produced by Columbia Pictures and Disney’s Marvel Studios and distributed by Sony. But Disney’s theatrical business swung to a $98 million operating loss in the quarter, while Disney+ subscriptions jumped 37% to 129.8 million, including 18% growth in domestic U.S. subs to 42.9 million. “The continued growth of our streaming services was certainly a standout,” said the CEO.

Though theaters have “generally reopened” during the COVID-19 pandemic, “we are still experiencing a prolonged recovery to the theatrical exhibition, particularly for certain genres of films, including non-branded general entertainment and family-focused animation,” said McCarthy. “This dynamic contributed to increased losses in the quarter,” she said, “partially offset by income” from Spider-Man: No Way Home.

Chapek estimates Disney+ is “roughly one-third penetrated” in potential U.S. subscribers, he said. “We still have some headroom in each one of our major franchises in terms of those viewers, those fans that have expressed interest in subscribing" to Disney+ is “not nearly tapped out” if someone “identifies” as a Lucas, Star Wars, Marvel or a Disney fan, he said. “The biggest opportunity in terms of significance is with general entertainment being added to the service.”

Disney believes the “predominance of local content that we are developing” will be the main driver of Disney+ growth internationally as the company tries “to appeal to the unique taste of each of those international markets,” said Chapek. “We just created a new organization within our company to shepherd the development of that content so that we can maximize the chance that we get some global hits, if you will, out of some of that local content.”

On Disney’s pricing strategies for Disney+, “we maintain that we offer an extraordinary price-value relationship around the world” for the service, said Chapek. Less than two and a half years into the Disney+ launch, said McCarthy, “we're learning a lot about what consumers are watching, consumption patterns, repeatability.” All those will factor into “the price-value equation going forward,” she said. “As we learn more, we'll continue to refine the business model.”